Australian Securities and Investments Commission (ASIC), the main corporate regulator responsible for monitoring the conduct of company directors and officers, is lobbying the Federal Government for an increase in its powers to automatically disqualify directors who have been involved in at least four failed companies over a seven year period.
If the Federal Government accepts the proposal and amends the current laws, ASIC will be able to automatically disqualify directors who have been involved in at least four failed companies, over a seven year period, provided that a liquidator in each instance, has lodged a report under s 533 (1) of the Corporations Act. Under the proposal, a director will not be entitled to a show cause hearing, which is the current position, but instead, the director will be entitled to apply to a Court to:
- contest the automatic disqualification by ASIC; or
- seek the Court’s approval to continue or commence a new directorship.
ASIC’s reliance on s 533 (1) reports is understandable given that a liquidator is required to lodge a report under that section if he is of the view that:
- A past or present officer of the company may have been guilty of an offence under Federal or State legislation; or
- A person who has taken part in the formation, promotion, administration, management or winding up of the company:
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May have misapplied or retained or otherwise become accountable for the company’s money; or
-
May have been guilty of any negligence, default, breach of duty or trust in relation to the company.
Although ASIC has made it clear that its efforts to seek law reform are aimed at tackling the ever green problem of phoenix companies, a significant side effect may be that entrepreneurship from directors and officers will be diminished given the increasing duties, liabilities and penalties being imposed upon them.
Company directors and officers should continue to monitor developments in this area particularly in light of the Federal Government’s election promise to crack down on phoenix activity and to introduce legislation that would make directors personally liable for the debts of companies in phoenix operations.
[1]For further information please contact:
Wendy Jacobs | Partner
T +612 8233 9537
F +612 8233 9555
E wendy.jacobs@dibbsbarker.com
Masi Zaki | Associate
T +612 8233 9601
F +612 8233 9555
E masi.zaki@dibbsbarker.com
[1] Ferguson, A. – ‘Four strikes and you’re out: Regulator in push to ban serial offenders’ – SMH 11,Dec 2010
